3 Ways to Save $1,000+ on Credit Card Fees

Interchange Series – Part 3

How a Merchant Cash Advance Works

If you are like most small business owners, the cost of processing credit cards in your business is one of your larger expense categories.  The average small business spends well over $6,000 per year on credit card processing fees.  For medium to large businesses these fees can quickly reach $100,000 or more per year.  Today I want to share three tips that will offer you immediate savings on your credit card processing fees, regardless of which processor you use.

#1 Tip – Make sure you are on “Interchange Plus Pricing.”  To go with the simple “Flat Rate” or “Tier Pricing” structures is tempting because the statements look so much simpler.  However, if you process more than $10,000 in credit card volume each month and you want to implement any of the tips below to reduce your costs, you need to be on “Interchange Plus Pricing.”  Here is why:

   -Transparency.  When you are on Interchange Plus Pricing (commonly called “Cost Plus Pricing”) the credit card processing company will pass through the actual costs of the transaction to you and add a flat mark-up percentage.  If you run a $100 transaction through your terminal and the interchange costs are 1.5% with a 0.5% mark-up, you will pay 2% for that transaction.  The statement will show the costs and the mark-up separately so you know exactly for what you are paying.

-Improvement.  If you are on flat rate pricing at 3%, there is nothing you can do to improve this cost.  Even if you make the changes I mention below, you will not see any impact.  All you will be doing is increasing the profits of the credit card processing company.  Because the processing company passes the true cost through to you on Interchange Plus Pricing, you can lower your costs by making changes to your operation.

#2 Tip – Change the way you accept cards.  If you have a pizza shop, you probably accept roughly half of your payments over the phone.  What you may not realize is that you are probably paying double the fees for a transaction over the phone versus one that is swiped.  The reason for this is simple – for a consumer to claim a phone transaction was fraudulent is easy.

Here are some tips for you on how you should be accepting payments: 

-Maximize the number of swiped transactions.  You should take a serious look at mobile payment solutions if you are currently delivering to consumers.  Again, your fees will be cut roughly in half by having your drivers swipe a card at the door of someone’s house versus taking the card over the phone if you are with the right processing company.

-Maximize the amount of information you obtain when processing phone / internet orders.  Rather than taking phone orders using a standard credit card terminal, my suggestion would be for you to use a “Virtual Terminal.”  This is basically a website such as “authorize.net” where you login and enter the information.  Using this method is much faster and will not tie up your main terminal.  It will also allow you to collect additional payment information such as First Name, Last Name, Billing Zip Code, and the CVV code on the back of the card.  This will dramatically reduce your interchange costs on that transaction and reduce the chances of a chargeback or fraudulent transaction slipping through.

#3 Tip – Settle Your Terminal every day automatically.  This may seem like a simple tip, and it is.  But I find that many small business owners do not understand the requirements involved.  When you first swipe a credit card, you get an “Authorization Code” which is stored in your terminal with a date stamp.

At the time you settle or batch your terminal, each transaction is submitted for processing with a new date stamp.  If these two dates do not match each other (meaning you ran a transaction on one day and settled it on another day), these transactions will have a much higher interchange rate.  The card companies have learned that transactions submitted on random days without a corresponding authorization code for the same day are highly likely to be fraudulent.  Also, there is greater likelihood for chargebacks when your customer calls Visa and says, “I was not in that store on Friday; this transaction couldn’t be mine.”

One other side tip I will give you is about “Tips” (no pun intended.)  When you get your authorization code back on a transaction, it stores the date and the amount of the transaction.  The amount you try to “settle” must match the amount you “authorized” unless your business type is approved for tip adjustments.  If you notice a bunch of high fees and you accept tips, check with your processor to ensure that you are set up with the correct business type.

I hope these tips will help you lower your fees!

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